Microsoft and the Innovator’s Paradox

That’s a pretty good title if you (like Henry Blodget from Silicon Alley Insider, the writer of the article) are trying to grab eyeballs. It also provides a useful introduction to what I call the “Innovator’s Paradox.”

Blodget’s article was provocative. He argued that Microsoft is in a no-win situation. It isn’t sitting on any idea that is on the cusp of turning into a multi-billion dollar business. The personal computer is losing its dominance to mobile devices and tablets. The company’s core profit drivers (Windows and Office) are under disruptive assault from Google’s freely available applications and operating system. At best, Microsoft will respond with its own free products and erode its profit margin.

The most telling thing in Blodget’s post was a chart that showed the sources of Microsoft’s profits over the past few years. Microsoft’s core business has continued — despite continued proclamations of the company’s coming demise — to throw off cash and to grow. But new growth businesses that were specks in 2006 (entertainment and devices and online services) remain tiny, and Microsoft hasn’t created any material new businesses over the past few years.

So the real problem isn’t what Microsoft is doing today. It’s what Microsoft did, or didn’t do, five, or even 10 years ago. At the time, its base business was a bastion of strength. Today’s threats were in their infancies. It would have been the perfect time to plant seeds that today would be blooming profit generators.

Why didn’t it? It’s The Innovator’s Paradox: When you don’t need the growth, you act in ways that lead to you not getting the growth you will need. And when you do need the growth, you can’t act in ways that deliver it.

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The INNOBLOG covers all aspects of innovation, from strategy to execution, in thought-provoking and insightful posts. Innoblog is a group forum to which many Innosight team members contribute. Outside contributions are welcome too. The blog is edited by Evan I. Schwartz, who also edits Strategy & Innovation.

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